Long question about government/biglaw/clerkships and loans

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Anonymous User
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Long question about government/biglaw/clerkships and loans

Postby Anonymous User » Tue Dec 11, 2012 11:51 pm

I am curious about the financial differences between a career in government vs biglaw. I will have about 230k in debt upon graduation. I am top 5 percent at a lower t14 on secondary journal with v5 SA lined up. I am assuming I have the option at both jobs for purposes of this question. Also, part of the reason I am having trouble with this is that I do not even know which I would rather do and money is a big part of why I would choose biglaw if I did go that route. Further, I am not sure about exit options and how those would factor in so feel free to add anything.

Okay now to my question:

Option 1: I go to biglaw. I start at 160k plus bonus. Don't most people leave of their own free will or are pushed out after three or four years? My loan payments are around 3100 a month to do 10 year payment plan. Thus, I 1) don't even know a good repayment strategy (either max out loans/ build nest egg instead/ build reserve fund and then max out loans) and 2) I have to say I think from a financial perspective that this is not all that much better than just going to work as an ADA.

Option 2: I go work as an ADA. School covers loan payments under IBR for 10 years. The rest is forgiven and non-taxable after 10 years. I make somewhere around 45-65k for the 10 year period and essentially have no loans? Plus, I don't think people are really pushed out right?

What is really the differences between the two options financially? I would really appreciate any input anyone has even if it does not fit directly into the financial aspect.

Thanks in advance.

P.S.

How would clerkships fit into this? Perhaps I should just start a different topic for this question, but I am trying to decide if I want to apply to one. I understand the value in being a better litigator and most people seem to enjoy it. However, if I choose to go the prosecutor route is it still all that valuable? Further, does doing a clerkship really change whether I would be pushed out involuntarily after 3 or 4 years or, conversely, make partner a more realistic option?

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thesealocust
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Re: Long question about government/biglaw/clerkships and loans

Postby thesealocust » Wed Dec 12, 2012 12:04 am

School / government IBR programs ease the burden of debt on those who pursue public sector work, but you'll still have way more money in biglaw. You'll also have more liquidity (i.e. even with a high debt burden, you can save more or spend more) and your long term earnings will likely be higher (exit options from big firms are often quite lucrative, if not as lucrative as staying at the firm).

I have to say I think from a financial perspective that this is not all that much better than just going to work as an ADA.


Run the numbers dude.

At current rates, 4 years in biglaw:

Year 1: $170,000
Year 2: $184,000
Year 3: $205,000
Year 4: $237,000

Total: $796,000 per-tax, ~$470,000 post-tax

At current rates, 4 years of government work est 55K /year = $220,000 pre-tax or more like $170,000 post-tax.

You'll have made $300,000 more in after-tax dollars according to those rough calculations. That's more than your entire loan (and you'll still be making payments even under IBR, and have much more flexibility with longer repayment plans at a firm). You would have (a lot) more money in biglaw even if your debt was automatically forgiven going into the public sector.

As for being pushed out, it's not that black and white. People leave because there are lucrative and/or lighter hour alternatives. Relatively few people are actually shown the door against their will, and that's even more true at top firms.

bdubs
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Re: Long question about government/biglaw/clerkships and loans

Postby bdubs » Wed Dec 12, 2012 12:31 am

What market(s) would these opportunities be in? If you're comparing a NYC V5 to an ADA position in a low COL area your results will change dramatically. If you would be practicing in the same market then it's an easier comparison.

I agree with sealocust though that biglaw will be much more lucrative. In the first year alone you would net $15k more even making some of the most generous assumptions (7.8% average loan rate, NY vs. Chicago for taxes, 65k starting salary as an ADA, no bonus in big law). The differences in subsequent years grow increasingly larger.

imchuckbass58
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Re: Long question about government/biglaw/clerkships and loans

Postby imchuckbass58 » Wed Dec 12, 2012 12:46 am

thesealocust wrote:School / government IBR programs ease the burden of debt on those who pursue public sector work, but you'll still have way more money in biglaw. You'll also have more liquidity (i.e. even with a high debt burden, you can save more or spend more) and your long term earnings will likely be higher (exit options from big firms are often quite lucrative, if not as lucrative as staying at the firm).

I have to say I think from a financial perspective that this is not all that much better than just going to work as an ADA.


Run the numbers dude.

At current rates, 4 years in biglaw:

Year 1: $170,000
Year 2: $184,000
Year 3: $205,000
Year 4: $237,000

Total: $796,000 per-tax, ~$470,000 post-tax

At current rates, 4 years of government work est 55K /year = $220,000 pre-tax or more like $170,000 post-tax.

You'll have made $300,000 more in after-tax dollars according to those rough calculations. That's more than your entire loan (and you'll still be making payments even under IBR, and have much more flexibility with longer repayment plans at a firm). You would have (a lot) more money in biglaw even if your debt was automatically forgiven going into the public sector.

As for being pushed out, it's not that black and white. People leave because there are lucrative and/or lighter hour alternatives. Relatively few people are actually shown the door against their will, and that's even more true at top firms.


Agree with your overall point, but I don't think it's as slanted as you make it because:

-Once you factor in interest, you'll probably pay close to if not more than $300k to pay off $230k in loans (online calculator says $318k on a 10 year repayment schedule assuming 6.8% interest)

-Taxes on $55k pre-tax are going to be considerably less than $12,500 / year. Federal taxes (assuming standard deduction, and single filer) are $7500. Even if you live in a state with high state/local income tax, it's not going to break $10,000 - probably won't even break $8500 after you deduct state / local taxes from your federal return.

-You will probably get raises working as a DA (not big, but something)

-IBR repayments are only $3840 / year (at $55k)

But I think you're right that the more important difference is long-term career trajectory. Exit options as an ADA (if you exit) generally aren't that lucrative, whereas from biglaw they can potentially be.

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Re: Long question about government/biglaw/clerkships and loans

Postby Anonymous User » Wed Dec 12, 2012 1:36 am

Thanks for the thoughtful responses so far guys.

bdubs wrote:What market(s) would these opportunities be in? If you're comparing a NYC V5 to an ADA position in a low COL area your results will change dramatically. If you would be practicing in the same market then it's an easier comparison.

I agree with sealocust though that biglaw will be much more lucrative. In the first year alone you would net $15k more even making some of the most generous assumptions (7.8% average loan rate, NY vs. Chicago for taxes, 65k starting salary as an ADA, no bonus in big law). The differences in subsequent years grow increasingly larger.


Yeah, it is NYC V5, but I don't have any ADA offers or anything so I don't even know where or if that was a possibility. I would imagine it would definitely be in a less expensive area. I was just wondering about this in order to get more of a defined idea about each option. From a financial perspective at least.

It is kind of hard to get an idea about the careers and which I would like better and so forth aside from simply reading about it (which I've done to the point of exhaustion) and discussing it with practicing attorneys (something I haven't really done but probably should). It seems like once you choose there is no going back although biglaw to AUSA seems like it happens now and then.

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A. Nony Mouse
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Re: Long question about government/biglaw/clerkships and loans

Postby A. Nony Mouse » Wed Dec 12, 2012 9:31 am

Anonymous User wrote:It seems like once you choose there is no going back although biglaw to AUSA seems like it happens now and then.

This seems a little overstated to me - people's careers can change a lot, I don't think your initial choice determines your fate. People can go from a firm to another firm, in-house, government, and back. Even if you pick one route and go with it - firm or government - people change firms or change government agencies or the like. There are doubtless directions that become easier/harder once you've taken an initial path, but you're not doomed to the same thing forever.

(it may be hard to predict where you'll end up, but that's different from saying you can't do anything else once you start.)

BeenDidThat
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Re: Long question about government/biglaw/clerkships and loans

Postby BeenDidThat » Wed Dec 12, 2012 9:38 am

Being an associate at a V5 for several years will open many doors. That gov't job door (or a rough equivalent) will probably stay open for you. Might as well take the money then do what you want after you have more of a sense of the legal field.

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thesealocust
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Re: Long question about government/biglaw/clerkships and loans

Postby thesealocust » Wed Dec 12, 2012 10:04 am

BeenDidThat wrote:Being an associate at a V5 for several years will open many doors. That gov't job door (or a rough equivalent) will probably stay open for you. Might as well take the money then do what you want after you have more of a sense of the legal field.


This is another great perspective. Unless you get a top flight government job later in your career, gov't -> firm transitions are very difficult. Firm -> gov't transitions, on the other hand, happen all the time and it could be viewed as a legitimately likely exit option.

There's nothing wrong with not wanting to be at a firm for your entire career. There's also nothing wrong with forgoing it entirely if you know what you want to do instead.

If you don't know what you want to do, it's kind of crazy not to take it. The legal industry is set up such that large firms have very high turnover and many other employers that view firms as great training and thus hire those who, for whatever reason, leave their large firm. Oh and by the way you get paid a ridiculous sum of money while you're at it (interest and a slight quibble over the gov't salary/taxes don't change the overall result that you have way more money and way more liquidity while at a law firm).

Honestly this largely holds up even for people interested in true public interest rather than government jobs. You'll find lots of PI organizations stuffed with people who did short stints at big firms.




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